Despite being based in one of the world's biggest and most polluted car markets, Chinese electric-car maker BYD Co. until recently sold few of its hybrid or battery-powered electric cars outside of its home province of Guangdong, thanks to a system of local subsidies.

Those rules are now changing under a new effort by China's central government to push local authorities to treat equally all Chinese car makers when granting green subsidies. This year for the first time, big cities are relaxing subsidy rules that...